Dollar reaches R$5.28 with change in fiscal target and conflict in the Middle East on the radar; Ibovespa falls

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The previous day, the North American currency advanced 1.24%, quoted at R$ 5.1847, at the highest level since March 2023. The main stock index on the Brazilian stock exchange ended with a decline of 0.49%, at 125,334 points. Pixabay Dollar The dollar rose sharply this Tuesday (16), with investors still reflecting on the increase in tensions in the Middle East and the change in Brazil’s fiscal target. The world continues to watch the possibility that Israel could retaliate against the attack carried out by Iran last weekend, which could worsen and spread the conflict in the region. With the market already stressed by geopolitical tension, the news that the government will stop pursuing a public accounts surplus in 2025 has increased investors’ bad mood. Now, the projection is for a zero deficit next year, in addition to a reduction in the surplus expected for the following years. Amid the negative scenario, Ibovespa, the main stock index on the Brazilian stock exchange, B3, is falling. See below for a summary of the markets. Dollar At 12pm, the dollar rose 1.76%, quoted at R$5.2758. At the day’s high, it reached R$5.2873. See more quotes. The previous day, the North American currency advanced 1.24%, quoted at R$5.1847, the highest level in a year. With the result, it accumulates increases of: 1.24% in the week; 3.38% in the month; and 6.85% in the year. Ibovespa At the same time, Ibovespa fell 0.60%, to 124,622 points. The day before, it closed down 0.49%, at 125,334 points. As a result, it accumulates falls of: 0.49% in the week; 2.16% in the month; and 6.60% in the year. Understand what makes the dollar rise or fall CASH OR CARD? What is the best way to take dollars when traveling? DOLLAR: When is the best time to buy the currency? What’s moving the markets? Despite the conflict in the Middle East weighing on the markets, the highlight of the day in Brazil is the assessment that there has been an increase in the country’s fiscal risk. Yesterday, the Minister of Finance, Fernando Haddad, confirmed the reduction of the Lula 3 government’s target, which is now to have a zero deficit in 2025, and that the minimum wage should be R$1,502 next year. In the previous LDO, the projection was for a surplus of 0.5% of the Gross Domestic Product (GDP) for 2025 and 1% for 2026. According to Valdo Cruz’s blog, this change in the target means opening up more space for spending, given difficulty in increasing revenue next year. The financial market did not like the relaxation even in the second year of the new fiscal framework’s existence. Yesterday, the dollar closed at its highest level in a year and continues to rise in this session, while the Ibovespa faces a sequence of falls. Investors see the measure as a defeat for the economic team, which had projected a surplus of 0.25% in 2025. According to the blog, the government could have opted for cuts to reach this level, but the economic team ended up assessing that the climate in Congress is no longer in favor of increasing revenue and, on the other hand, President Lula does not want to sacrifice investment projects. Also last night, the president of the Central Bank (BC), Roberto Campos Neto, warned that changing the fiscal target is not ideal and that monetary policy needs to go hand in hand with fiscal policy. In other words, he indicated that the interest rate level at the end of the falling cycle can be reevaluated. In this week’s Focus bulletin (a report that brings together economists’ projections), estimates for the Selic rate have already gone from 9% to 9.13% in 2024. High interest rates for longer periods are harmful to the economy because they make access to credit more expensive and reduce consumption. Changing fiscal targets is not ideal, says Campos Neto Furthermore, the market also remains attentive to the developments in conflicts in the Middle East. Over the weekend, Iran launched a missile and drone attack against Israel, following an alleged Israeli attack on the Iranian embassy in Syria. There is an international diplomatic effort, mainly from the United States and Europe, to contain the escalation of tensions, preventing Israel from responding to the attack. However, the Israeli government promised retaliation and will meet again this Tuesday to discuss a response. The Israeli government’s intention is to carry out an offensive that reaches Iranian territory but is not strong enough to provoke a new war in the Middle East, according to cabinet sources interviewed by the Reuters news agency. Iran said after the attack that it treated the issue as closed, but warned that it would retaliate in the event of a new attack by Israel. In this context of uncertainty, investors turn to securities that are considered safer to protect their assets. Thus, the dollar gains an advantage over other currencies, especially those from emerging countries, such as Brazil. Furthermore, US data came back strong, making investors believe that the Federal Reserve (Fed, the American central bank) may not reduce its interest rates significantly this year. Currently, interest rates in the United States are between 5.25% and 5.50% per year. Yesterday, the US Department of Commerce reported that retail sales increased 0.7% in March, above the 0.3% projected by economists polled by Reuters. February data was revised to an increase of 0.9%, instead of the 0.6% previously reported. The numbers made ten-year Treasury yields — a global reference for safe investments — exceed 4.60%. Federal Reserve Vice Chairman Philip Jefferson said on Tuesday that “it will be appropriate to maintain the current restrictive monetary policy stance for longer” if inflation does not slow down as expected. “My basic outlook remains that inflation will decline further, with the policy rate held steady at its current level, and that the labor market will remain strong, with labor demand and supply continuing to rebalance,” he said. Jefferson in prepared remarks for a speech at a Fed research conference in Washington. “Of course, the outlook is still quite uncertain, and if available data suggests that inflation is more persistent than I currently expect, it will be appropriate to maintain the current restrictive policy stance for longer. I am fully committed to getting inflation back to 2 %.” Investors continue to wait for speeches from the chair himself, Jerome Powell, during the afternoon, which could influence assets in Brazil.

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